Yesterday, Philippine President Rodrigo Duterte spoke about the current inflation problems in The Philippines. He correctly indicated that the root cause of inflation not just in The Philippines but throughout all developing economies (including in China) is due to external factors, namely the American trade war, the US Federal Reserves hiked interest rates and a reduced global US Dollar supply. Duterte then stated,

“I will talk to friend Trump … I have nothing against the American people, not the slightest … misgiving against Trump”.

When Duterte does talk to Donald Trump there is a clear solution that the two leaders can reach. Due to the US trade war with China, American farmers have lost some of their biggest customers in China. As a result, warehouses of unsold vegetables continue to be filled throughout the US while slaughtered animals are left to rot. To avoid a collapse of the US agricultural sector, Washington has agreed to subsidise farmers to compensate them for the loss of their business in the Chinese market.

But if the US government is going to subsidise farmers to let their unsold food to to waste, why not give the food to The Philippines? As the increase in the price of basic foodstuffs has been one of the most noticeable negative effects of inflation in The Philippines, if the US would simply give its excess supplies to The Philippines, not only would it help to temporarily solve the problem of food becoming less affordable especially the the poorest Filipinos, but it would also serve as a wake up call to the domestic agricultural oligarchs of The Philippines that their protectionist racket can be challenged through both short and long term important agreements.

If the US is truly a friend of The Philippines as every US leader since the formal end of the colonial era in 1946 has said that the US is, then there is no reason for the US to let the foodstuffs at American farms go to waste when they could help to feed people in a country whose inflationary problems were caused by American trading and monetary policies in the first place.

Below is Eurasia Future’s full report on the causes and long term solutions to inflationary problems

—

No one, including President Rodrigo Duterte is hiding the fact that current inflation levels in The Philippines are high. But the underlying reasons for this are primarily factors external to The Philippines. The fact is that virtually every developing economy including China’s economy is experiencing a currency depreciation which results in consumer price inflation. While the overall strength of China’s economy has helped to shelter the average consumer from much of the pangs of inflation, in other countries including India, Pakistan, Turkey, Russia, Iran, Indonesia, Argentina and many others, both businessmen and ordinary consumers are feeling the pinch.

The cause of current inflationary spirals in developing markets is derived from the following phenomena

–The US Federal Reserve shrinking the global Dollar supply by effectively reversing the quantitative easing practices of the last decade

–US tariffs and sanctions against developing economies leading to negative market speculation against multiple world currencies

–A robust US Dollar making it more difficult for developing countries to pay off Dollar loans while also increasing the cost of all Dollar based transactions (aka the vast majority of transactions) in international trade

–Comparatively high global energy princes in the light of new US sanctions on Iran and the generally unstable political situation in parts of the Middle East including in Iraq which like neighbouring Iran has vast oil reserves

Unless President Duterte is also the Chairman of the US Federal Reserve, the US President, the head of OPEC, and a Chinese trade envoy in addition to being the President of The Philippines, it would be ludicrous to blame Duterte for the current levels of inflation stemming from a weak Peso. Ironically, it would be fair to blame his opponents in the Liberal Party for this inflationary spiral because it is the Liberal Party that continues to defend the Liberal authored and implemented 1987 Constitution which severally restricts foreign direct investment (FDI) in The Philippines.

At present, The Philippines is a high growth developing economy, something which according to Keynesian economic rules will necessarily lead to at least some inflation even in the best of geo-economic circumstances. A similar situation exists in Turkey. When the US decided to turn the screws on the Turkish Lira, Ankara’s solution to the problem was to use a weakened national currency to its advantage by luring more foreign investors to the country – primarily from China. In fact, Turkey’s low Lira has helped to confirm a new era in respect of copious amounts of Chinese investment into Turkey.

Turkey’s openness to foreign investment, its continued economic growth and high employment numbers and an increasingly innovation friendly economic environment have given Chinese investors the confidence required to realise that in the long term an investment into an economy experiencing inflation will ultimately offer a higher return than investing in a slow growth or low growth economy with a highly valued currency and thus low inflation.

The Philippines could likewise make the best of a low Peso by attracting similar kinds of investment but the 1987 Constitution (aka ‘The Yellow Book’) will only let foreign investors own 40% of any corporate entity. Such draconian restrictions on FDI are incredibly unattractive to investors seeking to take a chance on putting money into an economy where foreign currencies can go further thanks to a weak Peso.

Furthermore, because the 1987 has helped to protect a small cabal of business oligarchs at the expense of a more open and diverse economy, the corrupt oligarchs continue to exploit the inflationary crisis to squeeze consumers further when a system open to economic diversity could help consumers buy inexpensive imports at a time of rising prices. This is for example why the price of rice has become un-affordable to some of the poorest Filipinos. Furthermore, the restrictive, anti-innovation business environment ushered in with the 1987 Constitution has made it difficult for The Philippines to export its way out of an inflationary crisis which under normal circumstances is a very important method that developing economies can implement to reduce the effects of a weak currency.

In House Speaker Gloria Macapagal Arroyo, Duterte has an expert economic manger whose strategies can help to ease inflation. Of course no such strategy can help to lessen inflation overnight while the prevailing global trends which are the root cause of the current inflationary spiral are not likely to change any time soon. Thus the question is therefore one of effectively managing domestic money supplies without harming small businesses and young workers who often require flexible loans to begin making their way in the wider private sector.

While it is becoming increasingly commonplace for Duterte’s critics to blame everything from personal heartbreak to the weather on the President’s policies, when it comes to inflation, the roots have little to do with the internal situation in The Philippines while the solutions that are forthcoming could not in any circumstance result in the voodoo problem solving being advocated for by the Liberal Party whose much beloved constitution makes solving the inflation problem that much more difficult.